NRG Energy acquires Edison assets for $2.64bn

December 2013 | DEALFRONT | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

NRG Energy Inc, the largest independent US electricity producer, has agreed to acquire the assets of unregulated bankrupt power company Edison Mission Energy for $2.64bn. The deal for Edison will see NRG boost its coal, gas and wind holdings considerably.

Edison and NRG have signed an asset purchase agreement which will be consummated as part of Edison’s Chapter 11 reorganisation plan. NRG has agreed to sponsor the restructuring process.

Under the terms of the deal NRG will purchase Edison’s assets including four coal fired plants in Illinois, 10 gas fired plants in California and more than 30 wind projects across 11 different US states. The deal will also see NRG acquire Edison’s trading and asset management platform.

NRG has noted that it will finance the deal by utilising 12.7 million shares of the company’s common stock, valued at $350m; the rest of the transaction is to be paid in cash. NRG will assume Edison’s nearly $2.1bn debt; around $1.55bn of that figure will be non-recourse debt to NRG.

Both companies expected the deal to close in the first quarter of 2014. The transaction will need to secure approval from the Federal Energy Regulatory Commission, the Federal Trade Commission, the US Department of Justice and the Public Utility Commission of Texas before completion.

The transaction covers Edison’s total 8000MW generation capacity which will be transferred to NRG. The facility acquisitions will nearly quadruple NRG’s wind generation capacity. Accordingly, the deal will see NRG become the third largest US based renewable energy generator with more than 2900MW of wind and solar capacity either in operation or under construction. NRG will also supply up to $350m in capital expenditures for plant modifications at facilities at Powerton and Joliet in order to ensure mercury and air toxics standards (MATS) compliance. “Edison Mission Energy is a great fit with NRG as virtually 100 percent of their assets, their expertise and the balance of their technologies deployed complement NRG’s own assets, personnel and businesses,” said NRG president David Crane.

Edison operates coal burning facilities with a capacity of 4300 megawatts, which is enough to power approximately 3.4 million average homes. Edison Mission Energy, which is a division of Edison International, also owns about 1700 megawatts of wind energy and runs heat and power plants at refineries owned by Chevron Corp. The unit filed for bankruptcy in December 2012 for a number of reasons, including a collapse in power prices, heavy debts, high fuel costs and rapidly rising pollution control costs. Edison was one of many companies within the energy sector to suffer as a result of the recession of 2007 to 2009, which cut power demand, and the glut of cheaper natural gas, which caused wholesale power prices to fall.

We are pleased to have reached this agreement with NRG, which maximises the value of our company for all of our stakeholders and paves the road for our emergence from Chapter 11,” said Eidson’s President Pedro Pizarro. “NRG is a leader in our industry, and its proposed acquisition of Edison Mission Energy is a powerful affirmation of the reputation and performance the men and women of EME have achieved over the past 25 years. We believe NRG and EME are a great fit operationally. We will continue to operate our fleet of coal, gas and wind energy facilities as we move through this transition and remain focused on ensuring safe and reliable operations.”

Shares in NRG rose 6.4 percent to $29.74 in New York on 18 October, the day the deal was announced. These gains meant that the company’s stock has increased 29 percent in the year to date.

Baker Botts LLP served as NRG’s legal counsel during the negotiation of the plan sponsor agreement and Barclays Capital Inc and Deutsche Bank Securities Inc are acting as the company’s financial advisers. EME’s legal counsel is Kirkland & Ellis LLP and JP Morgan Securities LLC and Perella Weinberg Partners LP are acting as the group’s financial advisers.

Richard Summerfield